Michael writes on emerging markets, architecture and
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Age and The Sydney Morning Herald.

The school-leaver has just stepped out of the Salvos Store in Bourke Street, Melbourne. She is with three friends on one of their regular “op-shopping” trips. For Bianca, hunting for clothes in second-hand stores is a great hobby. She says she’s been doing it for “five or six” years.

“The quality is just like what you would get in a store,” she enthuses.

The reaction of a customer such as 17-year-old Bianca is music to Allen Dewhirst’s ears. She represents the success of a strategy that the Salvos Stores chief and former managing director of Hertz Rent-a-Car has led to make the country’s biggest op-shop into a more professionally run operation.

It has worked. Over the past six years, the Salvos Stores “surplus” – as it calls the profit it hands to parent body the Salvation Army – has risen by $10 milliion, riding on, and encouraging, a trend that favours second-hand goods over new.

Dewhirst’s involvement started six years ago when, rather than retire, he saw a vacancy in the Salvation Army newsletter War Cry, for a retail operations head and decided to apply. He discussed it with his wife, whom he says was very keen for him to keep working.

He soon saw a great opportunity for change in the Salvos organisation.

“When I came on board it was ‘just do your best love, it’ll be OK’,” Dewhirst recalls. “That was our standard at that time. We pretty much needed to change everything.”

He is quick not to criticise the former management, pointing out they had increased the organisation’s profit from $3 million to $7.9 million in 10 years, but says – as he put it to his bosses, the Salvation Army’s leadership – they could do more.

“There is an opportunity to take this op-shop business to a retail recycling business and make it professional,” he told them. The first thing was to change the name. In 2006, a year after he started, the stores were rebranded, doing away with “Family Stores” and playing on the organisation’s core strength – its name.

“Everyone in Australia knows who a Salvo is, what the Salvos are, so we changed it to Salvos Stores.”

The next bit was harder. It meant culling people who were well-intentioned but weren’t up to the job.

“The organisation had gone through a period of promoting from within, so people who were volunteers became sales assistants, became store managers, even area managers,” he says. “Which was very nice but for many of them, they were promoted beyond their skills. Lovely people but promoted beyond their skills.”

This involved a restructuring of the organisation, cutting 19 geographical areas to 13 and over time hiring people from a mainstream retail background. His staff come from familiar names such as Myer, David Jones, Lincraft, Sportscraft and Laura Ashley.

Another charity, the Red Cross, has 160 stores, which contribute just over one-quarter of its income. The director of commercial operations, John Wills, has led a turnaround that over the past 2½ years has resulted in the development of four streams: op-shops, clothing boutiques, Red Threads fashion boutiques and Vintage stores.

Wills, a former managing director of clothing brand JAG and director at women’s fashion retailer Sussan, says about 40 per cent of his 160 paid staff have mainstream retail experience.

“They bring a wealth of experience with how retail works, setting sales targets, managing a store,” he says.

One task for these organisations has been to fight the stigma that kept people out of op-shops. In the case of Salvos Stores, this has been helped by campaigns such as its “Buy nothing new month”, “$2 Monday madness” and “Student Wednesday” promotions.

The push has extended the stores’ reach beyond – but not away from – the stores’ core customer, whose profile is a 45-year-old woman who visits two or three times a week, often for the social contact as much as shopping.

“We have specifically gone after a younger market to try and help them take away that stigma of ‘you don’t buy from op-shops’,” Dewhirst says. “We’re finding now our customer age group is dropping and that a lot of young people are going in to buy the retro stuff.”

The business now has 4500 fans on its Facebook page and has plans to start an eBay online store. Profit has more than doubled to $17.2 million from $7.9 million in six years, on turnover of $90 million. The turnaround story won Salvos Stores a commendation at last year’s Australian Retailers Association annual awards.

Not even a love of retro and an economy-inspired appreciation of second-hand has been able to shield the op-shop trade from the retail slump, however. At first, it didn’t look like that. The government’s economic stimulus handouts were a particular boon that sent business “through the roof”, pushing year-on-year sales growth up to 12 per cent, Dewhirst says.

This gave him confidence that his business would be immune from the slowdown hitting the mainstream industry. He was wrong. Sales kept rising but moderated to about 4 per cent.

“We had a really tough financial year like everybody else.”

Now, he says, boosted by the “I love Salvos Stores” campaign that started in August last year and will continue until April, sales growth is back up to about 8 per cent.

The crucial difference between a charitable recycler and mainstream retail, of course, is the stock. It comes from donations. A breakdown of Salvos Stores merchandise is 80 per cent clothing, 15 per cent furniture and 5 per cent bric-a-brac. While in the past the organisation relied completely on donations to meet its needs – it needs furniture for welfare clients referred to it by the Salvation Army who are given vouchers to use at the stores – since mid-2010 it has started buying beds and mattresses. Dewhirst puts that down to the tight economic times.

“We’re certainly not getting furniture,” he says. “People are keeping their furniture longer. We are still in desperate need of good quality furniture more than anything else.”

The quality of clothing donations has also declined. Cheap shirts costing $10 in the first place have a lot less wear in them than a designer shirt, he laments.

Donations from the likes of David Jones and Sportscraft mean about 10 per cent of stock in any store is new, Dewhirst says. The organisation’s corporate ties are growing. Salvos Stores has an annual promotion with outdoor brand Snowgum, for example. And in August, Salvo Stores will launch a tie-up with Myer, whereby customers donating a Myer private-label garment to a Salvos Store will get a discount voucher they can redeem on a new item at the department store.

While a good idea, the reality may prove hard. The Red Cross ended a similar tie-up with Country Road after 12 months. While it started off with a bang, it tapered off.

“When spoke to customers, they would say ‘It’s annoying, I put clothes in the car and forget to drop them off. Is there some place else more convenient we can take it?’ ” Wills says. His organisation is now looking at distributing donation bins in community sites such as businesses and local libraries.

The annual post-Christmas rush of donations, which started on Boxing Day at the country’s 212 Salvos Stores, was the biggest the organisation had ever seen. While donations are crucial, they bring costs. Throughout the year, about one-quarter of the stores open on Sundays to receive donations. If they don’t, by the Monday morning the best goods will have been stolen and the rest often damaged by weather.

Another side effect of receiving donations is being lumped with people’s rubbish. Households keen to avoid paying landfill fees on their rubbish – which in Victoria are $44 a tonne – frequently dump it outside Salvos Stores. These aren’t even donations of dodgy merchandise, it is pure rubbish. The post-Christmas donation rush also saw a 20 per cent increase in refuse left at Salvos Stores.

Unlike other states, where charities are exempt from landfill fees, the Victorian state government levies them. It is just another cost the charity says it could do without.

“We spend, collectively, about $5 million a year on dumping other people’s rubbish. That’s another $5 million that could help Salvation Army programs,” Dewhirst says.